Thursday 29 September 2016

Great damage has been done to the EU project - and there may well be more to come

Britain's departure is a disaster and the UK may be followed out by other countries, writes Colm McCarthy

Published 26/06/2016 | 02:30

No direction: The foreign ministers from the EU’s founding six states in the park of the German Foreign Ministry’s guest house Villa Borsig yesterday where they met to discuss Brexit. Photo: AP
No direction: The foreign ministers from the EU’s founding six states in the park of the German Foreign Ministry’s guest house Villa Borsig yesterday where they met to discuss Brexit. Photo: AP

The decision to take Britain out of the European Union hurts Ireland's economic prospects and some more air has escaped from the fiscal-space balloon. The departure threatens the survival of two unions, the EU and the United Kingdom itself, and the negative reaction in financial markets has not been overdone.

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The Remain campaign was accused of mounting Project Fear, warning of major economic risks. There was certainly some spurious precision in their warnings but there was no exaggeration. This is a serious injection of instability into a fragile European and world economy and great, and apparently unintended, damage has been done.

British voters have declined the advice of the political establishment for the first time at a national referendum, on only the third occasion they have been offered the opportunity. Irish politicians could have warned them that referendum defeats are an occupational hazard. David Cameron, the referendum's instigator, has, unsurprisingly, resigned. As with the invasion of Iraq, this was a war of choice, not necessity, and Cameron could not credibly stay on. There is something offhand about deciding an issue of such complexity, and such historical consequence, via a narrow result in a once-off referendum. Britain, it was remarked, acquired its nineteenth-century empire in a fit of absent-mindedness. It has now placed at risk the European political order in like fashion.

It is worth reflecting on the contrast with Britain's first national referendum, also on European membership, back in 1975. All the main political leaders recommended a vote to remain and the electorate obliged with a decisive majority. The pro-Europe vote has fallen from 67.2pc in 1975 to just 48.1pc on Thursday. Back in the 1970s, European integration was a high-prestige project, perceived as attractive in a struggling United Kingdom. The decade-long downturn, British relief at dodging the falling knife of eurozone membership and deep confusion about immigration have put paid to all that.

Opinion polls around Europe have been showing declining support for European institutions and there is pressure for exit referendums in several member states.

The governments of Hungary and Poland are in open conflict with Brussels, while the principal opposition party in Italy has demanded a referendum on eurozone membership. In France, the National Front also wants out of the common currency and the odds have shortened down to 2 to 1 against Marine Le Pen winning next year's presidential election. Coming on top of the common currency train-wreck and the incoherent handling of the refugee influx, Britain's departure intensifies the crisis of the European political project.

Another union, of Scotland with the rest of the UK, is in question again. It will be difficult to deny the Scots another referendum and it could carry next time round. The rump UK could end up with an external EU border with Scotland, as well as with the Republic of Ireland. An example of the resulting absurdities would be free movement between the Republic and Scotland, but customs, passport and residence restrictions with England, Wales and Northern Ireland.

The next UK prime minister will likely be a Conservative from the Leave camp, fuelling expectations of firm action on immigration, including restrictions on the rights of EU nationals to work and reside in the UK. This will do nothing to inhibit immigration from outside Europe, to which Leave voters were more sensitised, according to surveys. Continued access from EU countries may be the price of a good deal on trade. Immigration seemed to be the swing issue for many voters but Britain's EU exit will not deliver the advertised results.

There have never been movement restrictions in these islands. With Ireland remaining in the EU, it is difficult to see how passport checks at the land border with Northern Ireland could be avoided. There will be fears that the Republic would become a conduit for illegal migration into Britain via Northern Ireland. The preservation of a hassle-free Irish border could require restrictions on visa-free travel from continental Europe, a nightmare for the tourism industry.

Subjecting Irish exports to the UK to the regime currently applied with non-EU countries implies tariffs and other restrictions, which would be potentially damaging to agriculture in particular.

Ireland's large import trade from the UK could also face extra costs, pushing up prices in the shops. Sterling weakness against the euro also hits exporters.

The adverse effects of Brexit on this country cannot be ameliorated through bilateral deals between Dublin and London. No matter how much the governments in both countries would like to avoid disruption to existing arrangements, the process will simply not be bilateral.

Countries in membership of the European Union have no role in trade negotiations, nor can they do private deals on things like future labour mobility. These are the preserve of the European Commission, which will be given a mandate by the European Council to handle every detail of the negotiations, with the outcome requiring approval also by the European Parliament.

Whatever trade agreement eventually emerges will be between the EU and Britain, not between Ireland and Britain. Ireland will struggle to exert serious influence on the commission's handling of negotiations and the behaviour of our European 'partners' during the bailout does not inspire confidence.

In today's European Union, the interests of smaller member states play second fiddle to domestic imperatives in France and Germany, both of which hold national elections next year.

With the Commission leading the negotiations, the role of its president, Jean-Claude Juncker, is already controversial. During the Greek crisis in May of last year, Juncker spoke at the Catholic University of Louvain, alleging: "The Anglo-Saxon world would do everything in its power to dismantle the euro area piece by piece."

He back-pedalled on this outburst later, explaining that the Anglo-Saxon world did not equate to, or even include, the United Kingdom. There are numerous Junckers lurking in the European political woodwork who will feel that no favours are owed to the UK and that a generous divorce settlement would encourage other potential deserters.

There are protectionist tendencies in all of the EU countries and their lobbyists will be gearing up for a busy few years. They could nobble the prospects for continued British access to the single market to Ireland's disadvantage.

The process of exit will not commence until Cameron's successor is installed, probably in October. It may not be completed until the end of 2018 and could take longer.

The trade negotiations will be tortuous, not least because the UK has outsourced this function to Brussels since 1973 and has no civil servants experienced in the matter.

Decisions about the rights of people resident abroad under the current free movement regime will be particularly sensitive. There are a million Poles in the UK and a million Brits in Spain. They can hardly be tossed out and may be deemed by the courts to have acquired legal residence rights.

In testimony to the House of Lords, the lawyer Sir David Edward QC summed it up: "The long-term ghastliness of the legal complications is almost unimaginable."

The political leadership in the UK seems to have gone into shock on Friday as the consequences began to sink in. Even some of the Leave campaigners appeared bemused as they surveyed their handiwork and surprised that they had actually won.

The trouble is that the path ahead is unclear and it is not evident that leaving the EU can deliver what Leave voters expect. The American humorist H L Mencken observed: "For every complex problem, there is an answer that is clear, simple and wrong." The sense of grievance after almost a decade of economic under-performance found its outlet in a vote to quit the EU.

All economic opinion, from the Treasury, the Bank of England, the IMF and the vast majority of independent analysts, concluded that quitting the EU would not improve matters, and would more likely make them worse.

Announcing his intention to resign on Friday, Cameron said: "I will do everything I can as prime minister to steady the ship over the coming weeks and months, but I don't think it would be right for me to try to be the captain that steers our country to its next destination."

There is no clear destination. It is David Cameron's fault if he is remembered for steering his country, and the European Union, in the general direction of a large iceberg.

Sunday Independent

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